The new devices, which will be available in
October, are built on top of the Android Ice Cream Sandwich operating system,
but with a B&N wrapper. Price-wise, the new Nooks are competitive with
their Kindle Fire peers, as well as the Google Nexus. The 8 GB Nook HD costs
$199; the 16 GB model $229. The HD+ starts at $269 for a 16 GB model with a 32
GB model available for $299.

Initial product reviews from Engadget,
CNET,
The
Verge and others all point to a product with strong technical specs and
great design aesthetics. The 7” HD is clearly aimed at readers, while the
larger HD+ with its 1920x1200 screen resolution aims to match the Kindle Fire
HD as an entertainment device.

Yet product specs are largely irrelevant to whether Barnes
& Noble may have a successful future. The long-term viability of Barnes
& Noble will not be determined by product features, but really by
addressing two key questions:

How, if at all, can the brick & mortar
stores be an asset, rather than a financial drain?

What markets can B&N own?

The first generation Kindle was first released in late 2007
at a price of $399. While sales exceeded initial expectations, the first
generation Kindle remained a niche product. Amazon released the 2nd
generation Kindle in 2009 at a $299 price.

In October, 2009, Barnes & Noble responded with the Nook
at $269; Amazon responded by immediately cutting the price of the Kindle 2 to
$259.

When the Nook was first released, Barnes & Noble’s brick-and-mortar
stores were an asset. Kindles were still somewhat of a curiosity and the
typical consumer had probably never held one in their hand. Meanwhile, the iPad
had yet to come to market, and these early tablets were simply viewed as e-Readers.

Having a 1,000 square foot display at the front of each
B&N store was a key way of getting consumers to see and touch these devices
for the first time. At a price point above $200, these devices were not yet
impulse buys, so giving a buyer the ability to try it out in a store gave
Barnes & Noble an initial edge.

Since that time, tablets have emerged and readers have
become ubiquitous. Almost every student in my daughter’s 8th grade
class has at least one of the iPad, Kindle or Nook. According
to PwC, by Q1 of 2012, 30% of adults in the US had at least one portable
reading device. Price points have dropped below $100, making it an impulse
purchase. It’s so easy and inexpensive to buy a Kindle from Amazon that you don’t
need to touch it first. Today, roughly 6 in 10 eBooks are sold through Amazon,
with Barnes & Noble accounting for 25% and Apple 10%. The new Google Nexus
and rumored 7” iPad Mini will create further disruption in the market. And
those products will be available at Wal-Mart, Target and Best Buy, where Nooks will
not.

Fast-forward five years and any benefits of big box brick-and-mortar
stores will vanish. eBooks already have double-digit market share in the US, with PwC
forecasting that to reach 50% by 2016. The average Barnes & Noble store
is 26,000 square feet. As more and more content is consumed via devices, the
revenue per square foot of these stores will continue to slide and Barnes &
Noble will be forced to shutter many more stores.

What were once an asset will simply become an
anchor on the company’s bottom line.

Which leads me to the second question: Which, if any,
markets could Barnes & Noble own?

Under the above scenario, Barnes & Noble can expect to
see their e-reader market share drop from the current 25%. At the same time,
in-store sales, which currently account for 60% of the company’s revenue, will,
no doubt, shrink to a fraction of that as more content is purchased in digital
form. The reduced foot traffic to stores
will have an even bigger impact on profit margin, driven in part by the sale of
cards, trinkets and other impulse buys near checkout.

So, the outlook for Barnes & Noble successfully
competing with Amazon, Apple and Google as a general purpose e-bookseller seems
pretty dim.

Yet I do see an opportunity for Barnes & Noble to
succeed, by focusing on select niche markets where it can dominate.

The two most obvious markets in my opinion are children’s
books and the education market.

Children’s books remain one of the more profitable segments
in the book industry. According to the Association of American Publishers (AAP),
children
& young adult book sale growth exceeded 61% last year. Barnes &
Noble has long been a leader in the sale of picture books and early reader
titles. And while e-readers have transformed the overall book market, I believe
there is a lot more that could be done to bring the children’s book market to
digital. The solution there is more than just a cool device, but rather a close
partnership with publishers to develop multimedia content optimized for the
digital platform. Neither Amazon nor Google have shown the ability to work well
with niche markets. For them, it’s all about scale. Yet Barnes & Noble has
longstanding relationships with publishers whom it could partner with to
transform the digital reader market for children.

The education market is also ripe for transformation and few
companies are as well-positioned as Barnes & Noble to do so. This past
spring, B&N partnered with Microsoft to create a jointly-owned Nook
subsidiary aimed largely at the education market via the Nook Study etextbook
platform. I think Barnes & Noble should double-down on the education
space. When B&N put itself up for sale, I
suggested Blackboard, Inc. as a potential suitor. I still think that deal
would make a lot of sense, but even if that never comes to fruition, Barnes
& Noble needs to root itself deeply into the textbook market. That market
is up for grabs and it seems that Apple or Barnes & Noble will become the
likely winner. Barnes & Noble should move quickly to secure the needed
partnerships and focus its efforts on winning there.

There’s no clear path to profitability for Barnes &
Noble through brick-and-mortar stores or as a general bookseller. it simply does not have the size, scale or online traffic to compete with Amazon in the long run. The quicker
it focuses on the niche markets it could win and jettisons costly businesses
where it cannot, the more likely they can write a successful next chapter in
their history.

September 24, 2012

Built on blogging platform Wordpress with compelling
graphics optimized for the mobile user Quartz definitely has a different look
and feel than most of its business brethren. While it works smoothly on the
iPad, navigation and scrolling actually feel a bit clunky on the desktop. And that’s
OK with the Editor-in-Chief, as the Atlantic clearly has the tablet and
mobile reader in mind.

While the field is crowded, I do think there is still room
for another player in this space, if well executed. Others who have tried, both in print and online, have clearly stumbled (Portfolio, Big Money). Yet the Atlantic has shown in
the equally crowded political space, that they can carve out a strong niche,
through the assembly of a strong team of writers like James Fallows, Alexis
Madrigal and Ta-Nehisi Coates.

At the same time, most financial news providers have stumbled
in initial efforts to support tablet and mobile devices. Bloomberg and Reuters
are both delivering great commentary today, but their blogs frequently don’t
reach a mainstream audience. Aggregators like Pulse News or Flipboard remain
niche products for the technology savvy. There’s definitely room in the market
for a new entrant, particularly one unhindered by a print title or legacy
platform.

The mix of long form articles, big glossy images and short
linkfests is one that works well on mobile and the web. The challenge will be
in the delivery of compelling enough information that users will seek it out
and/or share it via social platforms. For Day One, I score the content about a 6
on a 1-10 scale. The Facebook Zero article is somewhat interesting, but I don’t
quite see how it commands the top position nor justifies its length. The
Brazilian cocaine chart seems random and doesn’t seem to meet the lofty target of core topics and knotty questions of seismic
importance to business professionals which Quartz sets as its focus.

Quartz News will be free for readers, funded through
sponsorships. The initial sponsors include Cadillac, Chevron, Boeing and Credit
Suisse. Perhaps their ad sales reps sorted their targets alphabetically. The sponsorship
model is common for tablet apps where the old metrics like page views are no
longer meaningful, and has been used effectively by the New York Times, The
Daily and others. Unlike either of those two, Quartz News is being built on a low budget.

By using Wordpress and HTML5, rather than building
a native app, The Atlantic is keeping costs under control while they test the
market viability.

It’s too early to tell whether Quartz News will be successful.
While the field is crowded, there’s no one title that seems to be reaching mainstream
business users on mobile platforms. With the right content, Quartz News could
find itself a compelling niche.